Potential Benefits

There are benefits and detriments to the speed, accessibility, no more need for geographic proximity, and rate at which we can trade stocks. I removed the word potential because we are knee deep in some of them, and as the technology for the internet increases, these attributes will only become greater. (Schroeder, 2008)

The first benefit is the cost of transactions lowering. Since the inception of online brokering, the price per trade has been driven down by competition to new, lower market equilibrium than before the internet (Reinkensmeyer, 2007). This has made the stock market more accessible for those trading with less money, and made more trades financially feasible (in terms of cost).

Another benefit is the speed at which transactions are done. Previously transactions would take minutes, or hours. By the time those transactions would go through, the stock price would have changed. In this case, the broker would have to take on the cost themselves, wait for a change back, or come back to the consumer with a higher price. Now the trades are instantaneous, and these things are problems of the past.

One of the greatest benefits is the notion of having to be near the stock market, or near a broker is completely taken out of it. Now someone in California, the Philippines, India, or anywhere else in the world has access to the same information at the same speed as everyone else in the world (Zekos, 2005). This also opens up the possibility of foreign trading. If the New York Stock Exchange closes at 4:00 p.m. eastern, you could just wait for the Tokyo Stock exchange to open and trade on their market. It takes the language barrier out of the equation when trading overseas, or rather passes it on to the website’s translators.

The arguably greatest benefit from the internet’s effect on the stock market is the speed at which the prices are displayed. As mentioned in the opening paragraph, I was able to watch my portfolio hemorrhage money in real time (Google). This gives the market a great amount of efficiency. With increased information it reduces the miss-pricing of stocks and bonds, and brings them much closer to the market equilibrium level.

There are potential problem that arise from the accessibility and ease of use. Untrained amateurs are jumping headfirst into the market and losing money as fast as they can (Schroeder, 2008). The ads for E-Trade, Ameritrade, Charles Schwab, and the slew of other e-brokers draw them in. While easy to use, it does not mean that the stock market is easy to understand. Where this can cause problems is in the case of my portfolio. The minor stock crash that happened was partially due to market conditions and partially due to panic. Untrained investors wildly sold their stocks, expecting a crash, causing a momentum shift of people going wild. It’s scary to think of untrained people with that kind of power, but the easier it gets to invest, the more power the amateurs have. To fight against this investors and companies have tools to use against such trading (which I won’t go into, because this is a paper about the internet, and not stock advice).